As the COVID-19 pandemic spreads across the globe, countries have by and large placed limitations on how certain businesses can operate and have required other businesses to temporarily cease operations altogether. Businesses impacted by these restrictions have suffered substantial financial losses and, unsurprisingly, are looking to their business interruption insurers to cover these losses. As businesses begin to make business interruption claims, a stark contrast is arising between how U.S. and European insurers and governments are handling the influx of such claims related to COVID-19.

In the United Kingdom, the Financial Conduct Authority (FCA) has announced that it will seek legal clarity on pandemic-related business interruption claims. The FCA plans on selecting claims arising under the most frequently used policy wordings that are creating uncertainty with respect to pandemic-related coverage and, with the agreement of insurers, will bring a lawsuit regarding those claims to obtain a judgment interpreting the policy provisions at issue as soon as possible. The interim chief executive of the FCA has stated that, in most cases, the FCA believes that business interruption policies do not cover losses related to the pandemic, but the proposed lawsuit is intended to bring clarity with respect to policies where coverage is unclear.

In continental Europe, some insurers have agreed to pay for COVID-19-related business interruption losses because of unfavorable court rulings. After losing a court case seen as a potential precedent for COVID-19-related insurance disputes, French multinational insurance firm AXA agreed to pay most business interruption claims for restaurant owners in France that have the same policy. AXA had argued that the policy did not cover business interruption caused by the pandemic because the policy was not written to cover viruses or pandemics. A Paris court disagreed and ruled that AXA must pay the restaurant owner two months of revenue losses caused by the pandemic. Although AXA initially said it would appeal, it agreed to pay the business interruption claims within about a week of the unfavorable ruling.

In Germany, a compromise has been reached between the German state’s economics ministry and a group of leading insurers. The German state will pay for 70% of business interruption losses for hotels and restaurants, and the insurers will pay for half of the business interruption losses not covered by the government (i.e., the insurers will pay about 15% of the total losses). Following this compromise in Germany, Swiss insurer Helvetia explained that it will pay 50% of business interruption claims to its Swiss restaurant policyholders in exchange for an understanding that future policies will not respond to pandemic. Although Helvetia denies liability under its policies (which contain allegedly pandemic-related exclusions), it agreed to the compromise because it is a “neat conclusion for everyone,” providing immediate relief to insureds while avoiding costly and time-consuming litigation.

While European governments have worked with insurers to collectively cover losses related to COVID-19, insurers in the United States have sought to avoid paying any such losses. Insurance trade associations have sent a letter to U.S. Senators urging the creation of a COVID‑19 Business and Employee Continuity and Recovery Fund backed by the federal government (this fund would be similar to that created by the Terrorism Risk Insurance Act of 2002, which was passed to address 9/11-related losses). Despite the trade associations’ alleged commitment to providing economic support to those in need, the letter does not identify what contributions, if any, would be made by the insurance industry, which would purportedly become insolvent if required to pay for COVID-19-related business interruption losses. Instead, it appears Congress is working on a forward looking Pandemic Risk Reinsurance Program that would provide backing for the future sale of insurance designed to cover pandemics.

The Department of the Treasury has stated that it is actively monitoring various proposals related to the pandemic’s impact on business interruption coverage. Meanwhile, insurers have been taking a hard line in claiming that business interruption coverage was never meant to cover pandemic-related loss, even with respect to policies that lack virus exclusions. For example, in Prime Time Sports Grill, Inc. v. DTW 1991 Underwriting Ltd., filed in the U.S. District Court for the Middle District of Florida, an insurer denied a business interruption claim arising out of the temporary closure of the insured’s restaurant due to the Florida Governor’s stay‑at‑home order. After the insured filed suit, the insurer promptly filed a motion to dismiss arguing that: (1) there was no direct physical loss or damage to the property as required for business interruption coverage to apply; (2) the stay‑at‑home order did not provide an alternative basis for coverage (i.e., it did not render the property uninhabitable or create a direct physical loss to the property); and (3) there was no civil authority coverage because there was no physical damage to property in the vicinity of the insured’s restaurant.

Although the motion raises the main arguments insurers will likely use—and are, in some cases, already using—to deny coverage, it is unknown for now how receptive courts will be to such arguments. Thus, unlike in Europe, there remains a great deal of uncertainty in the United States as to whether business interruption losses will be covered and, if so, whether the federal government, insurers, or some combination thereof will be the ones paying for these losses.